Wi-Fi “Innovation” in Indonesia: Working around Hostile Market and Regulatory Conditions

Posted on May 18, 2006 / 4 Comments

By Divakar Goswami & Onno Purbo, March 2006
LIRNEasia’s latest research paper is available for comment. The paper looks at the deployment of Wi-Fi in Indonesia, under the 2005 WDR theme, ‘Diversifying Participation in Network Development.’

Download paper: indonesia wi-fi study 2.0 [PDF]

Please post your comments below.

Executive Summary
With their low-cost and quick deployment time, wireless Internet technologies like Wi-Fi offer last-mile access network solutions to developing countries with limited network infrastructure. Among developing countries, Indonesia is unique for the extent of Wi-Fi that has been deployed by Internet Service Providers (ISPs) and private entrepreneurs in more than 40 towns and cities across the archipelagic nation. However, the findings from the current study finds that Wi-Fi “innovations” in Indonesia are not a result of enlightened policy designed to extend communication infrastructure to unserved areas but rather a workaround solution to hostile market and regulatory conditions.

The research objectives were to determine the conditions that gave rise to Wi-Fi becoming an access technology of choice for Indonesian ISPs; the lessons that can be abstracted from Indonesian Wi-Fi innovations; and the steps that must be taken for the next stage of Internet growth in Indonesia. Despite having two regulatory bodies, DG Postel and BRTI, the Indonesian telecommunication sector lacks credible, independent regulation. DG Postel is embedded within the Ministry of Communication & IT and BRTI is nominally independent being understaffed, lacking teeth and being chaired by a DG POSTEL representative. A poor regulatory environment is compounded by a non-competitive telecommunication sector dominated by PT Telkom and Indosat who were given exclusive licenses by the Indonesian government for fixed telephony and international gateways, respectively. In the absence of regulatory requirement to unbundle the local loop, PT Telkom’s monopoly over the last mile facilities that are critical to all local telecommunications services especially Internet service means that Internet Service Providers (ISPs) needed to build their own last mile infrastructure to reach customers. However, license conditions for Network Service Providers, the category that ISPs fall into, forbid them from building their own infrastructure—last mile or backbone. The ISPs used Wi-Fi in the access network as a workaround solution for their inability to build or buy last-mile infrastructure. Until recently (January 2005), the unlicensed use of 2.4 Ghz for Wi-Fi was illegal and the use of 5.8 Ghz continues to be. However, that has not prevented ISPs from using those parts of the frequency because Wi-Fi is cheaper and easier to deploy compared to wired infrastructure and has lower sunk costs at risk if caught by the authorities.

As is well documented in the literature of economics, monopolists do not invest the full amounts required for economic efficiency when they are provided with monopoly returns on their investments. This is the case in Indonesia with backbone infrastructure that is scarce outside the islands of Java and Sumatra and unevenly deployed even in those two islands. The inadequate supply of backbone and lease line infrastructure and the high monopoly prices for leased lines that exceed benchmark prices in other countries by as much as 48 times, has forced ISPs to use Wi-Fi as low-capacity backhaul networks to carry Internet traffic. These cost saving strategies by ISPs have not been able to keep retail Internet prices from being three or four times the price in benchmarked countries. This has resulted in a multi-tiered retailing of Internet service, where large customers like schools act like ISPs using Wi-Fi to connect to neighbourhood networks, other schools and businesses to recover high Internet costs that can be as much as US$4000 per month for a 2Mb link. It is evident from the research findings that ISPs in Indonesia have used Wi-Fi “innovations” to circumvent market & regulatory barriers. Until credible regulatory reform is carried and the telecom market is liberalized, the gains in the telecom sector generally and Internet specifically will be limited and unsustainable. For quickest results for high Internet growth in Indonesia, the regulator must reduce leased line prices as a number of studies in different countries have shown.

The silver lining for Indonesia is the inherently lower costs of Wi-Fi compared to wired last-mile access technologies, providing the country with potentially explosive Internet growth if conducive regulatory and market conditions are created.

Wi-Fi “Innovation” in Indonesia – Final Report Version 2.0

Wi-Fi “Innovation” in Indonesia – Draft Report Version 1.2

4 Comments

revantha
May 19, 2006, 4:24 pm
Folks many a things to learn from this paper are we juts letting the regulator define our scopes without going that extra mile for beeing innovative..
goswami
May 22, 2006, 1:44 pm
As part of PANOS’ media toolkit on ICTs, they have produced a document titled Going the last mile: what’s stopping a wireless revolution? Available here
The objective of the document is to enable journalists in the developing countries to write informatively about wireless access in their countries and what steps the government can undertake to enable its use. This objective is poorly met since this document fails to discuss explicitly the policy recommendations that governments need to carry out. The document lists various restrictions that governments place on wireless growth but it does not recommend enabling steps that need to be taken to remove the barriers to wireless communication.

The most enabling step governments can take is to delicense the 2.4GHz. The PANOS document is ambivalent on this recommendation, for some reason. The various barriers listed include high license fees and customs duties on wireless equipment, but the single most important barrier which makes it illegal for ISPs and others to use the Wi-Fi range of frequencies is not mentioned as a barrier. My paper on Wi-Fi innovations in Indonesia (above) discusses instances in Africa where ISPs had their equipment confiscated for illegal use of the 2.4GHz. Even in Africa, the regional regulatory body TRASA (The Telecommunications Regulators Association of Southern Africa) is unambiguous in urging the southern African governments to change their regulations to allow license-exempt access to the 2.4 GHz and 5 GHz bands by recognizing that WiFi can play a substantive role in increasing access to opportunities in Africa (Please see Guidelines on Wireless Policy and Regulations Available here: http://africa.rights.apc.org/index.shtml?apc=ie_1&x=31332). Hence, it is a bit perplexing why PANOS chooses to remain silent on this important recommendation.
The PANOS report does not outline any role for civil society. As my Wi-Fi paper in Indonesia discusses in length, civil society groups have played an important role in creating a pool of ICT technicians and knowledge producers who have enabled the deployment of Wi-Fi and Internet connectivity in their communities. Also, civil society groups have effectively lobbied with the Indonesian government to delicense the 2.4 GHz. These are steps that civil society groups can take on their own without having to wait for government action.

The document spends considerable amounts of space discussing spectrum management (page 3) that has little relevance to journalists or for anyone who needs to understand the issues surrounding barriers to wireless growth. Finally, there are a number of inaccuracies in the document, the most blatant is the Indian Cellular Association’s claim which they have reproduced, which states that 1 per cent growth in telephone penetration results in 3 per cent increase in GDP growth! By that measure, India’s teledensity which grew by around 1% (4.56-5.89) from 2004-2005 should have increased the GDP from 6.9 per cent to 9.9 percent in 2005 (it was around 7.5%). By that same measure, Pakistan’s GDP growth should be around 12 per cent!

The document discusses “wireless” communication in such general terms that it can include microwave, ultrawideband, Bluetooth, DECT and dozens of different wireless standards. Different wireless technologies have different frequency and power requirements and are governed by specific policies and handled differently. They are also suited for specific applications and country contexts. It is precisely because of the general terms by which wireless communication was discussed in the document that it makes it difficult for the authors to make specific policy recommendations. PANOS would have been better off focussing on the Wi-Fi and Wimax range of frequencies and outlining the steps governments and civil society organizations in developing countries can take to extend communication access in unserved areas using the two wireless technologies.
Divakar Goswami
June 12, 2006, 4:24 pm
The Indonesian Wi-Fi Report above identified inadequate backbone networks within Indonesia and lack of competition in international bandwidth and gateway market as prime contributors to Indonesia’s high Internet prices. Among the policy recommendations for the Indonesian government was the following on backbone infrastructure:

“In order to address the problem of not enough supply of network infrastructure, the
government could invest in creating more backbone by laying submarine and terrestrial
cable and creating a fiber ring connecting the main islands, as it has proposed to do
under the Palapa Ring Project. However, based on the timetable the government has
proposed, the infrastructure will not be created any time in the near future.

Furthermore, the current economic outlook for the Indonesian government due to high
crude oil prices and subsidy payouts, does not inspire much confidence in its ability to
mobilize the necessary capital for rolling out backbone infrastructure. An easier option
for the government would be to change its licensing framework to allow more players to
invest in Indonesia’s communication infrastructure.”

On June 8th, 2006, the Indonesian Telecom Ministry (DGPT) proposed the building of an international fiber-based backbone to connect directly to the Internet backbone bypassing the Singapore hub. According to the Director General of DGPT, this initiative would significantly lower high Internet prices in Indonesia. This venture being proposed would be a government led initiative with private sector participation and would cost nearly $1.6 billion.

Details on this proposal can be found below in Bahasa, the local Indonesian language:

Independent Backbone to Internet will be ‘flagged down by’ parliament’?

Indonesia Plans Independent Internet Backbone

The cost of independent Internet backbone could be 15 trillion Ruppiah

From the outset, this proposal seems doomed. Although the intention is a noble one (to reduce Internet prices) the means are neither the most efficient nor feasible. For one thing, there is no budgetary support for this and under the tight financial constraints that the Indonesian govt is in, it seems unlikely that it will be supported. Secondly, this proposal does not have parliamentary approval and in all likelihood (as the article above alludes) it may get shot-down by parliament. Thirdly, initiatives of this scale aren’t usually proposed by the regulator and usually need to have the ministry of finance and higher levels of the government on board. The DG should have stuck to what it can do within its ambit.

To lower international bandwidth prices, the DG could have
1) issued price ceilings on international leased circuit prices that are the monopoly of Indosat
2) Openned up the international gateway to competition
3) Allowed landing rights to more operators

Sometimes, the simpler solutions are abandoned in search of unrealizable ones.
Pingback: Indonesian Minister Proposes Auction for Backbone Rollout at LIRNEasia